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Thursday, January 8, 2009

Money for Nothing

The book Money for Nothing: One Man’s Journey Through the Dark Side of Lottery Millions is Edward Ugel’s story of his life as a salesman buying lottery annuities. Ugel tells entertaining stories that expose the character flaws of not only the lottery winners, but also the salespeople (including himself) who chase these winners.

To understand the business Ugel was in, you first have to know that often big lottery prizes are paid out over time like an annuity. So, a prize advertised as $5 million may actually be $250,000 per year over 20 years.

For the entrepreneur who understands how people react to winning a lottery, these annuities create a business opportunity. To see this, let’s imagine a couple, Frank and Ann Beck, who win $250,000 per year for 20 years. In January of the first year they get their money and buy a big house, planning to make the mortgage payments with future years’ lottery payments.

Then Frank’s deadbeat brother moves in with them, and several other family members and friends come by with their hands out. The Becks aren’t too good with numbers, and by July, they are out of money and starting to borrow. When they get their next payment in the second year, they climb out of debt, but have little left over.

By mid-way through the third year, the Becks have debts piling up and are getting nervous. They are also very embarrassed to be in this situation. After all, they won $5 million. Now, along comes Edward Ugel to solve their problems. He offers to buy their remaining 17 lottery payments for a lump sum right now.

The Beck’s aren’t sophisticated people and don’t realize that the amount offered to buy the annuity is too low. They just see an end to their problems and accept. Ugel makes another huge commission.

It’s not just the lottery winners who have character flaws that cost them money. Ugel and many of his fellow salespeople had gambling problems; he liked video poker, slot machines, and other forms of gambling.

Overall, this is an entertaining book that exposes the human weaknesses of average people who win lotteries and the people like Ugel who preyed on them.

Gene: The book is written so honestly that I didn't find it depressing. The author changed all names to protect privacy. In many cases, it is the lottery winner who approaches Ugel's firm based on having seen an ad.